Concept explainers
a.
To calculate: The compensation expense for year 2.
Given Information:
Number of shares granted is 150,000.
Exercise price of the shares is $20.
Fair value at the grant date is $66.
Vesting period is 3 years.
Vesting probability is 100% in each year.
b.
The compensation expense for year 3 and journal entry of it.
Given Information:
Number of shares granted is 150,000.
Fair value at the grant date is $66.
Exercise price of the shares is $20.
Vesting period is 3 years.
Vesting probability is 100% in year 1 and 2.
Vesting probability is 75% in year 3
c.
The journal entry at the time of expiration of remaining stock.
Given Information:
Number of shares granted is 150,000.
Fair value at the grant date is $66.
Exercise price of the shares is $20.
Vesting period is 3 years.
Vesting probability is 100% in year 1 and 2.
Vesting probability is 75% in year 3
Want to see the full answer?
Check out a sample textbook solutionChapter 19 Solutions
Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)
- On January 1 of Year 1, Holiday Inc. offered a stock option incentive plan to a top executive. The plan provided the executive 300 stock options for Holiday Inc. $1 par value, common stock at an option price of $15 per share through the expiration date of January 1 of Year 7. The fair value of the options based upon an option-pricing model on January 1 of Year 1, is $9,000. The market price at year-end of Holiday Inc. stock is $15 per share on January 1 of Year 1, and $18 on December 31 of Year 1. The requisite service period is 3 years. The options were not exercised due to the stock price remaining below $15 per share after the vesting period. Record the entry on January 1 of Year 7 for the expiration of the stock options. Note: If a line in a journal entry isn't required for the transaction, select "N/A—debit" and "N/A—credit" as the account names and leave the Dr. and Cr. answers blank (zero).arrow_forwardSpaulding Inc. granted their executives incentive stock options on January 1, 2023. On this date, 275,000 shares of the company's $5 par value common stock were granted at an option price of $40 per share. On the grant date, the market price of the stock was $50 per share. Market prices of the stock were as follows: December 31, 2024 $70 per share December 31, 2025 $82 per share The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. The service period for the options is 2 years. The options were exercisable beginning on January 1, 2025 for employees still working at Spaulding. The options expire on December 31, 2029. On June 1, 2025, 110,000 options were exercised and the market price on this date was $75. What amount should be debited to Paid-in Capital - Stock Options? a) $600,000 b) $0.0 c) $375,000 d) $750,000arrow_forwardBerg Company adopted a stock-option plan on November 30, 2019, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $12 a share on November 30, 2020. On January 2, 2020, options to purchase 28,000 shares were granted to president Tom Winter—15,000 for services to be rendered in 2020 and 13,000 for services to be rendered in 2021. Also on that date, options to purchase 14,000 shares were granted to vice president Michelle Bennett—7,000 for services to be rendered in 2020 and 7,000 for services to be rendered in 2021. The market price of the stock was $14 a share on January 2, 2020. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $4 per option. In 2021, neither the president nor the vice president exercised their options because the market…arrow_forward
- Aylmer Corp., a public company, adopted a stock option plan on November 30, Y4, designated 120,000 common shares as available for the granting of options to officers of the corporation at an exercise price of $9.20 a share. The market value was $11.25 a share on November 30, Y4. On January 2, Y5, options to purchase 55,000 shares were granted to President Riley. These were to be earned equally over the subsequent two years. The shares' market value was $14.00 a share on January 2, Y5. The options were exercisable for a period of one year following the years in which the services were rendered. On January 2, Y5, the value of the options was estimated at $653,000. On June 8, Y7, the president exercised 42,000 of the options. The shares' market value was $9.60 a share on December 31, Y7 when the rest of the options expired. REQUIRED: a. Prepare the necessary journal entry in Y4 when the stock options…arrow_forward2. ABC Corporation (a public company) establishes an employee stock option plan on January 1, year 1. The plan allows its employees to acquire 10,000 shares of its P1 par value common stock at P52 per share, when the market price is also P52. The options may not be exercised until five years from the grant date. The grant-date fair value of an option with similar terms and conditions is P8.62. Compensation expense at the end of year 1 is Answer:arrow_forwardMoonlnc. granted their executives incentive stock options on January 1, 2017. On this date, 275,000 shares of the company's $5 par value common stock were granted at an option price of $40 per share. On the grant date, the market price of the stock was $50 per share. Market prices of the stock were as follows: December 31, 2018 December 31, 2019 The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. The service period for the options is 2 years. The options were exercisable beginning on January 1, 2025 for employees still working at Moonlnc. The options expire on December 31, 2029. What journal entry should the company make on January 1, 2023 under the fair value method? On June 1, 2025, 68,750 options were exercised and the market price on this date was $75. What amount should be debited to Paid-in Capital - Stock Options? a)$375,000 b)$750,000 c)$0.00 d)$1,656,250 $70 per share $82 per sharearrow_forward
- On December 31, 2016, Sedona Inc. granted 160,000 options to key executives. Each option allows the executive to purchase one common share at a price of $6. The options were exercisable beginning January 1, 2019, if the grantee was still employed by the company at the time of the exercise, and expire on December 31, 2020. On the grant date, shares were trading at $6 per share, and a fair value options pricing model determined total compensation to be $80,000. On May 1, 2019, 120,000 options were exercised when the market price of the shares was $7 per share. The remaining options lapsed on December 31, 2020 because the share price declined below $6. Assume that the entity follows IFRS. Prepare the necessary journal entries related to the stock option plan for the years ended December 31, 2016, through 2020arrow_forwardBramble Company adopted a stock-option plan on November 30, 2019, that provided that 63,700 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $12 a share on November 30, 2020.On January 2, 2020, options to purchase 29,100 shares were granted to president Tom Winter—16,200 for services to be rendered in 2020 and 12,900 for services to be rendered in 2021. Also on that date, options to purchase 13,800 shares were granted to vice president Michelle Bennett—6,900 for services to be rendered in 2020 and 6,900 for services to be rendered in 2021. The market price of the stock was $13 a share on January 2, 2020. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $4 per option.In 2021, neither the president nor the vice president exercised their options because the market…arrow_forwardLCI Cable Company grants 1 million performance stock options to key executives at January 1, 2018. Theoptions entitle executives to receive 1 million of LCI $1 par common shares, subject to the achievement ofspecific financial goals over the next four years. Attainment of these goals is considered probable initially andthroughout the service period. The options have a current fair value of $12 per option.Required:1. Prepare the appropriate entry when the options are awarded on January 1, 2018.2. Prepare the appropriate entries on December 31 of each year 2018–2021.3. Suppose at the beginning of 2020, LCI decided it is not probable that the performance objectives will be met.Prepare the appropriate entries on December 31 of 2020 and 2021.arrow_forward
- Bramble Company adopted a stock-option plan on November 30, 2019, that provided that 63,700 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $12 a share on November 30, 2020.On January 2, 2020, options to purchase 29,100 shares were granted to president Tom Winter—16,200 for services to be rendered in 2020 and 12,900 for services to be rendered in 2021. Also on that date, options to purchase 13,800 shares were granted to vice president Michelle Bennett—6,900 for services to be rendered in 2020 and 6,900 for services to be rendered in 2021. The market price of the stock was $13 a share on January 2, 2020. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $4 per option.In 2021, neither the president nor the vice president exercised their options because the market…arrow_forwardOn January 1, Year 1, Lasagna Corporation granted to an employee the right to choose either shares or cash payment. The choices are as follows: •Share alternative – equal to 25,000 shares with par value of P30 •Cash alternative – cash payment equal to the market value of 20,000 shares The grant is conditional upon the completion of three years of service. On grant date, on January 1, Year 1, the share price is P51. The share prices for the three-year vesting period are P54 on December 31, Year 1, P66 on December 31, Year 2 and P65 on December 31, Year 3. After taking into account the effect of vesting restrictions, the entity has estimated that the fair value of the share alternative is P48. What is the compensation expense for Year 3? A. 480,000 B. 600,000 C. 580,000 D. 420,000arrow_forwardOn January 1, Year 1, Lasagna Corporation granted to an employee the right to choose either shares or cash payment. The choices are as follows: •Share alternative – equal to 25,000 shares with par value of P30 •Cash alternative – cash payment equal to the market value of 20,000 shares The grant is conditional upon the completion of three years of service. On grant date, on January 1, Year 1, the share price is P51. The share prices for the three-year vesting period are P54 on December 31, Year 1, P66 on December 31, Year 2 and P65 on December 31, Year 3. After taking into account the effect of vesting restrictions, the entity has estimated that the fair value of the share alternative is P48. What is the share premium if the employee has chosen the cash alternative on December 31, Year 3? A. 730,000 B. 0 C. 700,000 D. 180,000arrow_forward